The three types of real estate distress that will help you find deals

Yesterday I gave an impromptu real estate lecture in the lunch room at the firm. I was teaching my Persian and Hispanic coworkers about how to invest in real estate. Me, the black dude, the dude you all said can’t build generational wealth because because because because because….. Stop that. Stop limiting yourself, we as a culture are leaps and bounds ahead of everyone else because that is just how we do. Anything we touch, we dominate.

That said, the question was posed about buying homes in Tallahassee Florida because it was a college town. To that I said it depends. See, every home isn’t a deal. We don’t buy homes we buy deals and deals follow distress. Here are the three main types of distress as taken from the BRRRR book that I am currently reading.

Personal Distress

Personal distress is distress from getting laid off, getting divorced, losing a loved one etc. This kind of distress is what you usually find from a wholesaler. They are mailing lists from divorce records and court records and they will likely locate these kinds of deals. I was listening to the BP podcast and the guests mails these lists. He said that sometimes the lists are so fresh that he actually informed someone that he was getting a divorce. He hadn’t received the papers yet but they were filed.

If you are looking to find deals you want to target people in these circumstances. People who need to get out from under their home quickly and in cash.

Property Distress

Property distress comes in the form of deferred maintenance. This can be a bad roof, a kitchen that needs updating, fire damage, water damage etc. I was talking to a friend on the property tour and he informed me that his first two flips were water damaged properties. We have turned a water damaged property and now we are on to fire damaged properties.

As I was walking through the triplex a friend sent a gross face. This property was obliterated. Paint was peeling, the floors were bad in certain areas and overall it was a mess. This is what a deal looks like fam.

Investors and entrepreneurs run toward the problems. Problems look like fire damage. Problems look like vacant homes next door. The key is looking at that problem with new eyes. We cannot solve the same real estate problems with the thinking used to create them. This is why you have an advantage being someone who isn’t from a certain area.

The more distressed the property the more likely you can get a deal, especially from a landlord that owns multiple doors.

Economic Distress

The recession is coming the recession is coming. This is the distress everyone is always talking about. Everyone talks about how they are going to boss up and buy everything during the next recession. A lot of people don’t realize that in a recession credit is harder to get and people are less willing to invest their cash. Everything contracts during a recession, that is why the prices fall. As demand falls and supply increases the price must fall. Banking on a recession shouldn’t be the goal, finding a recession that nobody else sees or that everyone is overlooking should be the goal.

In the book when they mention economic distress (a recession) in the same vain as other forms of commonly discussed distress it made me realize that you create your own recession you just have to find it. You have to find that sub market or that property owner that is in their own economic distress and you can find a deal. This could look like Detroit, Baltimore, Philly, etc. Find the recession, find the high unemployment, find the tight credit and you have found opportunity.

Overall its important to realize that you don’t need a recession to find deals. Its also key not to bank on that. It is also key that you learn to see opportunity differently. The idea that real estate makes you money is a false statement to make. Real estate deals make you money. Buying turn key or in a great neighborhood or doing what everyone else is doing will keep you spinning your wheels. Most do that because they want to avoid problems. This is lazy and it will not end well for you. Successful people want the ugly stuff. Chase distress in real estate not just real estate.

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Thanks for reading!

Be great, invest well,

Todd Millionaire

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